Blockchain tech company Node40 believes its latest offering will help Bitcoin users stay in Uncle Sam’s good books.
Node40 Balance, the company’s SaaS offering, now comes with Bitcoin support that allows users to report gains and losses to the IRS via intuitive software that analyzes the blockchain, calculates net transaction values, tracks cost basis and days carried, and populates it into IRS Form 8949.
“Not only is blockchain accounting inherently complicated, it’s currently under heavy legal scrutiny,” Node40 CEO Perry Woodin said. “Since the IRS considers digital currency property, each and every input to a transaction has a potential gain or loss. Tracking the cost basis and days carried on every input to a transaction is simply not possible without sophisticated software.
“Node40 Balance allows digital currency owners to use the blockchain as the public ledger it was always intended to be, and provides users with the most accurate data for their reporting obligations at tax time.”
The development is timely given the current climate featuring the Coinbase vs. IRS lawsuit, cryptocurrency tax evasion probes and the low percentage of bitcoin users who bother to report gains to the IRS.
“The IRS-Coinbase summons motivated Dash owners to use our service and get their records in order for the 2016 tax season, and Bitcoin owners have well and truly been put on notice,” Mr. Woodin added. “The voluntary compliance rate for United States citizens is over 80 per cent, which makes it obvious that most people take reporting their tax liability seriously; we believe bitcoin users haven’t had the right tools available yet.
“If the industry wants digital currency transactions to become commonplace, an integrated service like Node40 Balance is essential. It validates the legitimacy of a new, complex form of transacting, and compliance is crucial to bringing a new technology into the mainstream.”
Bitcoin traders previously had two options: a manual process or First In First Out (FIFO). Both have their issues, Mr. Woodin said.
“The problem with FIFO is that it needs to be applied at the time of the transaction. People should really be creating transactions where the inputs are FIFO; it simply doesn’t work to apply FIFO after the fact. While some services are geared towards one-off taxation reporting, Node40 Balance aims to be a consistently accurate platform that tracks performance and reports on gains, losses, and income throughout the year. All users need to do is upload their transactions, await the calculations, and then send the resulting Form 8949 to the government when they file.”
Node40 Balance’s bitcoin service is available for Electrum wallet users with pending integrations for Exodus and Trezor. Free access through the end of 3Q17. Coinbase users must transfer their Bitcoin to an Electrum wallet before reporting with Nide40 Balance.
“Even as digital currency matures and more mainstream investors jump aboard, we believe that bitcoin will permanently remain a form of property, as per notice IR-2014-36,” Mr. Woodin said. “What this means is that reporting bitcoin tax liability is an individual legal responsibility under the ‘Sale and Disposition of a Capital Asset,’ and Americans need a long term, reliable, cost effective, and most importantly, IRS-friendly solution.”